Death Bonds, Latest Investment Rage

Death Bonds, Latest Investment Rage

Just when you thought you had seen the last elegant, complex, and high-risk investment vehicle (I am thinking of all the sub prime machinations), now we have death bonds on the market.  These derive from pay-up-front offerings to people (often the elderly or ill) to sell their life insurance policies to investors who pay the premiums and collect the face value upon the death of the individuals.  This is a field that has moved from small and dubious plays in "life settlement securities" to the entry of big investment banks and the creation of a new "asset class" with projections of $150 billion in the next decade or so.    This is not a joke.  Investment banks are already hawking death bonds to institutional investors.  It will not be long before there will be mutual funds in this niche.  This is sleazy stuff and the investor needs to look closely into these "products."  The person selling his/her life insurance policies also needs to think twice -- three times  -- before getting sucked into doing so.  Business Week thought this was a big enough issue to make it a cover story this week.  Their story is entitled, Profiting From Mortality. 

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • Anonymous

    July 25, 2007

    It is amazing what people will cook up. I wouldn't touch these bonds.

  • Anonymous

    July 25, 2007

    There has always been an institutional market for packaged life insurance bonds. Wall Street employs a lot of actuarial accountants. They are risky because demographic changes or changes in life expectancy can render them worthless. There is a public policy question here - should society accept taking out a policy that would benefit from someone else's demise. For example, in some parts of Western Europe, it is quite common for seniors to sell and lease back their property to strangers until death, but this practice is limited in the US.

  • Anonymous

    July 25, 2007

    Is it even legal? I didn't realize life insurance was transfereable?

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